Paris, June 11, 2021 -- Moody's Investors Service ("Moody's") has today affirmed the Government
of the Netherlands' Aaa long-term issuer and senior unsecured
ratings as well as its Prime-1 (P-1) short-term issuer
rating. The outlook remains stable.
The key drivers for affirming the Aaa ratings of the Netherlands are:
(1) The Netherlands' economic strength has shown itself to be resilient,
even to a very large shock such as the pandemic;
(2) The government's fiscal metrics remain very robust, even
though the authorities used the government's balance sheet to blunt
the impact of the pandemic on the real economy; and
(3) Institutions and governance are among the strongest in our rated universe.
This rating driver is considered to be a governance factor under Moody's
The stable outlook reflects our view that downside risks to the Netherlands'
credit profile are mitigated by the high degree of economic resilience,
significant fiscal space, the sovereign's institutional capacity
to manage shocks and a proven track record of addressing long-term
challenges such as demographic change. The Netherlands also shows
limited susceptibility to event risks.
The Netherlands' local and foreign currency country ceilings remain
unchanged at Aaa and its short-term foreign currency bond ceiling
remains at P-1.
RATIONALE FOR THE AFFIRMATION OF THE Aaa RATINGS
FIRST DRIVER: THE NETHERLANDS' ECONOMIC STRENGTH HAS SHOWN
ITSELF TO BE VERY RESILIENT DURING THE PANDEMIC SHOCK
The diversified and competitive Dutch economy was quite resilient during
the combined health and economic shocks in 2020. The Netherlands'
share of global export markets has held up better than for some of its
European peers, reflecting comparatively stronger competitiveness.
The Netherlands has managed to be a world leader in adopting flexible
work arrangements while retaining a high-quality social safety
net. It is also a leader in ensuring that the labour force has
a high level of digital skills and it continues to invest in the skills
that will be in high demand for future areas of growth in advanced economies.
As was the case for most advanced economies, the economy contracted
in 2020 due to the impact of the coronavirus pandemic, but its contraction
was milder than what Moody's has observed in most euro area countries.
The highly diversified nature of the Dutch economy and the high degree
of digitalization in the economy provided more resilience to the economic
shock caused by the pandemic. The government's willingness
and ability to use its balance sheet to support the economy also helped
to soften the economic impact of lockdown measures.
Looking ahead, Moody's expects that the Netherlands will make
a quick economic recovery in spite of the economic contraction in Q1 2021.
In fact, Moody's now expects that pre-pandemic growth
levels will be reached in 2021. The recovery will be supported
by the continuation of government financial support packages into Q3 2021,
but investment spending will also make a positive contribution to growth
this year. Moody's anticipates that the recovery will accelerate
in 2022 due to a sharp recovery in private consumption; as is the
case in many countries, households have accumulated significant
savings during the pandemic and Moody's expects much of that savings
to be spent. Increased wages due to collective labour agreements
will also support economic growth.
Over the longer term, Moody's thinks that the Netherlands'
growth potential is slightly above 1.5% per annum,
which is somewhat slower than what Moody's has observed in the past
because of the aging population. However, the government
is making significant investments in education and R&D to increase
growth potential and counteract some of the negative impact of a modest
decline in the working-age population (though it is noteworthy
that the participation rate of workers over the age of 65 is among the
highest in the European Union (EU, Aaa stable) and is rising).
The Netherlands is also having some success in encouraging workers to
remain in the labour force for longer. In fact, the European
Commission's latest Ageing Report shows that Dutch men will have
the highest average retirement age in the EU in 2025.
SECOND DRIVER: FISCAL METRICS REMAIN ROBUST DESPITE PANDEMIC-RELATED
The Netherlands has a track record of maintaining prudent fiscal policies
and relatively low debt levels. The government was running fiscal
surpluses going into the crisis, and the increase in general government
debt is expected to be small (just under 10 percentage points) relative
to peers. While the 2021 deficit will remain high because of higher
healthcare costs and the extension of emergency measures that will protect
employment and maintain household purchasing power, in 2022 Moody's
expects that higher revenues and the end of emergency measures will allow
for a rapid decline in the deficit. This, in turn,
will support a gradual decrease in the debt burden.
The debt is also becoming even more affordable. Interest costs
are falling steadily throughout the forecast period and will total only
0.2% of GDP by 2024 (0.5% of general government
revenues). The Dutch State Treasury Agency (DSTA) is targeting
a 6-8 year average maturity between 2020-2025, so
somewhat longer than what Moody's sees in the Government of Germany
(Aaa stable) but a shorter weighted average maturity than what Moody's
observes in the Government of the United Kingdom (UK, Aa3 stable)
which has a clear preference for issuing longer-dated debt) and
in lower-rated countries that are more vulnerable to volatility
in funding cost (such as the Government of Spain (Baa1 stable) and the
Government of Italy (Baa3 stable)) when risk perceptions change.
THIRD DRIVER: EXCEPTIONALLY STRONG INSTITUTIONS AND GOVERNANCE
Moody's assesses the Netherlands' strength of institutions
and governance to be among the highest in the world. The Dutch
have a track record, which extends back nearly two centuries,
of bringing debt levels down when they have risen as a result of a deterioration
in economic conditions. This track record continued in the years
following the global financial crisis, where a 25 percentage point
increase in the debt burden was largely unwound between 2014 and 2019
through a combination of asset sales, primary budget surpluses,
robust economic growth, and declining funding costs. More
generally, there is a widespread political consensus in favour of
fiscal consolidation and debt reduction, as demonstrated most recently
in political parties' manifestos for the 2021 lower-house
elections. While the speed of debt reduction is likely to be somewhat
slower in the coming years due to decisions to invest in education,
R&D, and other policies that are likely to support long-term
growth, there appears to be a clear cross-party consensus
in favour of keeping the debt burden below 60% of GDP.
Independent institutions such as the CPB, Statistics Netherlands
and the Netherlands Court of Audit play a strong role in fiscal governance.
Expenditure ceilings are inflation-adjusted and set for an entire
legislative term while automatic stabilizers work on the revenue side.
Under Dutch fiscal rules, revenue windfalls cannot be used to finance
expenditure and, in general, departments need to compensate
for any overspending themselves. The Netherlands has codified these
fiscal rules in law, and the law covers both the national government
and subsectors of the government, such as local authorities.
The Dutch authorities are keen on improving on the already robust fiscal
framework. For instance, in 2017 the current set of fiscal
rules was reviewed to identify ways it could be better aligned with the
European framework and address certain features that lead to procyclical
fiscal outturns, and the Dutch State Treasury Agency evaluates its
debt management policy framework every four years.
Macroeconomic policy formulation and implementation is generally sound
and the authorities take a forward-looking and pro-active
stance, focusing on maintaining the Netherlands' competitive
edge and ensuring long-term fiscal sustainability. However,
the Dutch economic structure and high degree of trade openness exposes
it to external shocks and the authorities have limited means to proactively
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
The Netherlands' ESG Credit Impact Score is neutral-to-low
(CIS-2), reflecting moderate exposure to environmental risks,
low exposure to social risks, and a very strong governance profile
that supports the rating and in general capacity to respond to shocks.
Its overall E issuer profile score is moderately negative (E-3),
driven by elevated exposure to physical climate risks, in particular
stemming from rising sea levels. The Netherlands has centuries
of experience in managing water risk, and it has invested significant
resources in its water defenses. It has institutions such as the
regional Water Boards that allow it to engage in longer-term planning
to deal with water risk, as well as technical expertise in water
management. However, it is an unavoidable fact that the largest
concentration of the Netherlands' wealth and population is in the
Randstad, the area that includes Amsterdam, Rotterdam,
The Hague, and Utrecht that is particularly vulnerable to rising
We assess its S issuer profile score as neutral to low (S-2),
reflecting low exposure to social risks across most categories.
The only category than entails moderately negative risk is demographics:
demographic change in the form of relatively rapid population ageing poses
a long-term challenge mainly to the Netherlands' potential
growth outlook and, to a much lesser extent (because of past pension
reforms), to fiscal sustainability.
The Netherlands' very strong institutions and governance profile
support its rating and this is captured by a positive G issuer profile
score (G-1). The country has a very strong institutional
framework, fiscal policy is prudent, forward-looking
and long-term oriented and overall policy formulation and implementation
is prudent and transparent. Coupled with high wealth levels and
strong government financial position, this supports a high degree
of resilience, mitigating E and S risks.
RATIONALE FOR STABLE OUTLOOK
The recommendation to affirm the stable outlook reflects our view that
downside risks to the Netherlands' credit profile are mitigated
by the high degree of economic resilience, significant fiscal space,
the sovereign's institutional capacity to manage shocks and a proven
track record of addressing long-term challenges such as demographic
change. The Netherlands also shows limited susceptibility to event
GDP per capita (PPP basis, US$): 57,534 (2020
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -3.7% (2020
Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.9%
Gen. Gov. Financial Balance/GDP: -4.3%
(2020 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 7.8% (2020 Actual) (also
known as External Balance)
External debt/GDP: [not available]
Economic resiliency: aa1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 08 June 2021, a rating committee was called to discuss the rating
of the Netherlands, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's institutions and governance strength, have not materially
changed. The issuer's fiscal or financial strength, including
its debt profile, has not materially changed. Other views
raised included: The issuer's susceptibility to event risks has
not materially changed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING DOWN
The Netherlands' Aaa government bond rating would come under downward
pressure if Moody's were to observe a material and prolonged deterioration
in its economic strength. Additionally, the rating could
come under pressure in the event of a sharp increase in the government
debt burden that Moody's deemed to be unlikely to be reversed.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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At least one ESG consideration was material to the credit rating action(s)
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Sarah Carlson, CFA
Senior Vice President
Sovereign Risk Group
Moody's France SAS
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Alejandro Olivo Villa
Sovereign Risk Group
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Moody's France SAS
96 Boulevard Haussmann
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454